Let the battle begin!
Latin telco analyst
has been right so far in predicting hefty stock-price gains for
( TBR), a skilled operator in Latin America that could wrest away high-usage customers.
The bulls see the long waiting lists for cellular phones as a good source of future revenues. But people in the queue could be low-usage customers or -- worse yet -- high-volume users who don't pay.
Plus, some people may only apply for cellular lines because they can't get a wireline. Consequently, when the new privatized wireline companies start to supply new phones, the cellular waiting list will shrink.
On top of all that, says Treston, add in the huge new costs of marketing and subsidizing handsets. Under the Telebras monopoly, spending on such items was extremely weak for the cellular operations.
Laurent says he is aware of these threats and has factored them into his model. Yes, he says, profit margins will drop in the new competitive environment, to around 45% in some cases from 60%.
And he even concedes that the Telebras cellulars will reel in only 30% of all new subscribers. But, in spite of all this, he is convinced that underlying subscriber growth is strong enough that the firms can achieve returns on equity of 30%-40% in two to three years.
Laurent says other analysts have been far too pessimistic in their predictions of market penetration by the cellulars. Currently, some 4% of Sao Paulo residents have cell phones. Laurent says the market consensus is that penetration could rise to around 8%, and he adds that he thinks it could jump to 20%.
How so? Laurent points to the Portuguese market, which he has covered. The country's per-capita income is similar to Sao Paulo's, but that didn't keep cellular penetration from reaching 20%.
"It makes no sense to start shorting these cellular companies," he says.